Financial watchdog bares teeth over extending stricter pay rules

No wonder bankers feel persecuted. Underlining their status as public enemy No 1, the Financial Services Authority yesterday released the findings of an inquiry into whether its new rules on bankers' pay should be extended to other firms it regulates.

No wonder bankers feel persecuted. Underlining their status as public enemy No 1, the Financial Services Authority yesterday released the findings of an inquiry into whether its new rules on bankers' pay should be extended to other firms it regulates.

The answer, the FSA said, is no.

The regulator has accepted the argument that banks are a special case.

They were bailed out because their collapse would have been systemically dangerous, so they must now expect more onerous regulation than other financial services companies.

Risk-taking was incentivised by wrong-headed pay and bonus packages, the argument goes, so such rewards must be policed.

Fair enough, except that the FSA's proposals do not apply only to those systemically important banks; they will also cover building societies and inter-dealer brokers.

The former have had some problems, though the failure of individual mutuals wouldn't plunge the whole financial system into chaos, while the latter were not part of the credit crunch at all.

If there is a case for extending the FSA's reach on pay beyond the UK's biggest banks, why isn't there a case for applying it to the whole financial services sector?

Why stick at financials at all (though this is where the power of the FSA itself ends).

The failure of banks to ensure pay structures have not encouraged excessive risk-taking is ultimately a failure of shareholders, who sign off on the rewards.

There is no evidence to suggest shareholders in non-financial companies are being any more diligent. And while those firms may not be so systemically crucial, the normal standards of governance should still apply.

If shareholders aren't up to that task, there is a case for regulatory intervention.